Appraisals Roil Real Estate Deals

[question everything]

JUNE 9, 2009

Appraisals Roil Real Estate Deals
Conservative Approach to Home Pricing Makes It Harder to Refinance or Sell

By JAMES R. HAGERTY and RUTH SIMON
WSJ

Appraisals are becoming one of the biggest obstacles for Americans trying to sell their homes, refinance their mortgages or tap into home-equity credit lines. During the housing boom, appraisers often complained of pressure from lenders to inflate home-value estimates to justify dubious mortgage lending. Now, some people in the mortgage business -- and some borrowers -- say the pendulum has swung too far the other way. Patti Sanders, an aerospace engineer in Oakdale, Calif., knew prices were down sharply but said she was "flabbergasted" recently when her 3,100-square-foot Victorian home was appraised at $250,000, compared with $635,000 assayed two years earlier. The new estimate prompted a lender to reject her application for a refinancing that would have lowered her mortgage payments about $400 a month.

Lenders burned by huge losses from defaults now are pressing appraisers to be more conservative. And appraising itself is more difficult with home prices fluctuating rapidly and transactions few and far between in some markets; sale prices from a few months back may no longer reliably indicate the value of nearby homes. "If history is no longer valid, then it is very difficult to get good and accurate values," said Mark Rattermann, an appraisal trainer in Indianapolis. John Rooney, an appraiser in Phoenix, said about half the recent appraisals he has done for people seeking to refinance have been too low to allow it. Applying to other lenders is likely to cost borrowers $350 or more for another appraisal.

Valuation disputes are also throwing a monkey wrench into some sales. Chris Rubis, a real-estate agent in Fairfield County, Conn., said one client recently accepted an offer of about $750,000 on a four-bedroom, four-bathroom home. But the appraisal, which was done by someone outside the local area, came in last week at $700,000. That might require the buyer to come up with more cash for a down payment. "It's opened a whole new door for negotiation," Mr. Rubis said.

Credit lines are also vulnerable. J.P. Morgan Chase & Co. recently froze one customer's home-equity line of credit because, the bank said, his Manhattan apartment -- a 2,650-square-foot three-bedroom, two-bedroom duplex with a terrace appraised at $1.475 million in 2005 -- was worth just $600,000. Chase told the borrower, who asked not to be identified, that the lower credit line would remain in effect until a new appraisal could demonstrate the value was much higher than $600,000. The borrower then paid for a new appraisal that pegged the property at $1.8 million... Chase will restore this borrower's full credit line, he added.

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The situation became more complicated on May 1 when the appraisal industry adopted the Home Valuation Code of Conduct. These new rules apply to mortgages that will be owned or guaranteed by government-backed mortgage companies Fannie Mae and Freddie Mac, which recently have accounted for about two-thirds of all new home loans. Fannie and Freddie agreed to the code last year after New York Attorney General Andrew Cuomo accused them of failing to ensure that appraisers were shielded from pressure to inflate their estimates. The code bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. This has encouraged lenders to outsource the selection to appraisal-management companies, or AMCs, which take a sizable cut of the appraisal fee. As a result, appraisers are under pressure to "do it faster, do it cheaper," said Bill Garber, a spokesman for the Appraisal Institute, a trade group... The upshot, appraisers said, is less accuracy and certainty about a property's actual value. The code also permits lenders to own stakes in AMCs. That means lenders can profit from a service they require borrowers to buy -- and that protects the lenders themselves.

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ttp://online.wsj.com/article/SB124450388959795613.html (subscription)


Printed in The Wall Street Journal, page A3

[Hassin Bin Sober]

1. The Home Valuation Code of Conduct is a joke.

Honest lenders, like my company, will abide by the letter AND the spirit.......making my more job a little more difficult, cost my customers money and tie up closings. The dishonest lenders will still get away with murder even after they "signed a pledge" to operate on the up and up.